State News : New Jersey

This practitioner is often asked two questions regarding workers’ compensation settlements in New Jersey:  1) Can we settle out of court? and 2) Can we get a termination agreement at the time of settlement?

There are a number of limitations on settlements in New Jersey that are different from the practice of law in other states.  One has to do with the prohibition against out of court settlements. The employer, third party administrator or carrier may not reach an agreement with the injured worker to settle a workers’ compensation claim unless that claim is the subject of a claim petition properly filed and heard before a Judge of Compensation.  An injured worker is not even eligible for an award of permanent partial disability until he or she files a claim petition through counsel.

Three sections of the New Jersey Workers’ Compensation Act make this clear:  N.J.S.A. 34:15-22, 34:15-39, and 34:15-50.  In all three sections, as a precondition to settling any claim of workers’ compensation, a claim petition must be filed in the Division of Workers’ Compensation, and only the Judge of Compensation can enter an order approving settlement or one of dismissal.

Another major distinction between New Jersey and other states has to do with waiver of workers’ compensation rights in other agreements.  The statutes cited above make clear that the employer may not ask an injured worker to waive rights to workers’ compensation as part of another agreement, such as a separation agreement.  There are many laws that can be waived in a valid separation agreement, such as rights under the ADA, FMLA, etc., but workers’ compensation is not one of them.   These kinds of waivers are against public policy.

Similarly, it is fairly common in many states that an employer will get a signed letter of resignation at the time of the workers’ compensation settlement.  There are both practical and legal reasons why this does not happen in New Jersey.  First, most injured workers are back to work doing the very same job by the time the settlement occurs.  That is a big practical difference from other states where workers remain out of work for years even for relatively modest injuries.

New Jersey is not a wage loss state but rather a functional loss state.  Most of the injured workers in New Jersey who have formal claim petitions in the Division have already returned to work long before the settlement, either to their former job or a new job.  In wage loss states like Pennsylvania, the injured worker may have been out of work for years by the time the case is settled.  In states like Pennsylvania, the worker who has been away from work for years may agree to provide a letter of resignation for nominal consideration. 

In New Jersey, going back to work – even the same job – does not detract from the ability of the injured worker to obtain a compensation award for permanent partial disability.  Injured workers in New Jersey may receive both temporary disability benefits and an award of permanent partial disability as part of the same case.  There is no requirement that an injured worker prove impairment of working capacity to obtain an award of permanent partial disability.   All the injured worker must do is prove objective medical evidence of impairment as well as substantial impairment of major life activities.

Since the vast majority of injured workers are back to work in New Jersey at the time of settlement and doing the very same job as the one they did before their injury, seeking a resignation letter is fraught with legal peril.  First, the employee is often an active working unit performing essential job functions. In that situation, there is seldom any legal basis to terminate someone who is doing his or her job satisfactorily. Second, many judges would view an attempt to terminate an injured worker as part of a workers’ compensation settlement as retaliatory or a violation of the New Jersey Law Against Discrimination.  If the employee is able to perform the essential functions of the job, termination of employment as part of a settlement of a workers’ compensation claim would likely lead to immediate labor law litigation.

So can an employer ever get a resignation at the time of settlement?  It can be done but it must be done through labor counsel, following all the rules that prevail in such agreements in New Jersey.  Further, these employment releases are only done when the employee remains out of work for a very long time.  The agreement between the parties must be negotiated for separate consideration, and the injured worker will almost certainly need his own labor counsel.   There are many laws that such an agreement must cover to be effective, and any employment release must meet state and federal legal requirements. 

If the parties do reach an agreement on termination of employment through respective labor counsel, that agreement will not be placed on the record in the New Jersey Division of Workers’ Compensation.  Judges will not reference any separation agreement nor determine whether it is fair or just.  The employment agreement is executed outside workers’ compensation court with both sides having retained labor counsel to advise them.

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John H. Geaney, Esq., is an Executive Committee Member and a Shareholder in Capehart Scatchard's Workers’ Compensation Group.  Mr. Geaney concentrates his practice in the representation of employers, self-insured companies, third-party administrators, and insurance carriers in workers’ compensation, the Americans with Disabilities Act and Family and Medical Leave Act. Should you have any questions or would like more information, please contact Mr. Geaney at 856.914.2063 or by e‑mail at jgeaney@capehart.com.